Equity financing Flashcards
What is venture capital?
Equity investment in new private companies
Most new companies initially rely on:
- Family funds
- Bank loans
Equity investment provided by wealthy individuals are known as:
Angel investors
Many adolescent companies raise money from:
Specialist venture capital firms
What do venture capital firms do?
- Pool funds from a variety of investors
- Seek out promising start up companies
- Finance the firm’s operation
- Work with the companies as they grow
Are venture capital firms passive investors?
No
What are two non monetary benefits that venture capital firms can offer?
Advice, experience and contracts
Most venture capital funds are organised as:
Limited private partnerships
In VC firms, pension/mutual funds and other wealthy private investors are the:
Limited partners
The management company of the venture capital firm is the:
General partner
What are the two parts of a VC’s typical investment policy?
- Accept high uncertainty
- Identify failed investments early and accept loss
What are two ways for VCs to cash in on their investment?
- Sell shares to a larger firm directly
- Sell shares when the firm becomes public
What is a primary offering?
New shares sold to raise additional cash
What is a secondary offering?
Existing shareholders can cash in by selling part of their equity holdings
What are underwriters?
Firms that buy an issue of securities from a company and resell it to the public, and provide advice
What is a registration statement?
document needed for approval by the stock exchange operator during the beginning stage of an IPO
What are the two pieces of information on a registration statement?
- Firm’s history and existing situation
- The proposed projects intended to be financed with the funds raised
What are the 5 stages of an IPO?
- Registration statement
- Prospectus
- Road show
- Book building
- Issue price
What is a road show?
Talk to potential investors to get an idea of how much stock they wish to purchase and for how much
What is book building?
Build a book of likely orders and use this information to set issue price
What are three IPO costs?
- Spread
- Admin costs
- Direct costs
What is ‘spread’ in an IPO?
Difference between the price that the underwriter buys the new issue, and the price it is offered to the public
What are examples of admin costs in an IPO?
- Legal counsel
- Financial advisers
- Accountants
What are direct costs in an IPO?
- Mailing
- Printing
